Corporate social responsibility (CSR) refers to the voluntary decision of companies to address social and environmental concerns by contributing to a public good, reducing external costs, and increasing fairness or distributional equity. CSR is looked at from an economic point of view, focusing on environmental and natural resource issues with a particular emphasis on water. The term CSR is first clarified and contextualized before being situated in the economics literature. This note studies CSR from an economic angle, and looks at how it is in line with economic incentives. It focuses on: (1) the extent to which there is a need for CSR in terms of the characteristics of the economic environment that make CSR policies effective; and (2) how CSR policies interact with firms' operations and profit maximization. This technical note supports cases in the Darden course elective, “The Global Economics of Water.” Excerpt UVA-GEM-0143 Aug. 10, 2016 The Economics of Corporate Social Responsibility The term corporate social responsibility (CSR) is often used these days. CSR refers to the voluntary decision of companies to address social and environmental concerns by contributing to a public good, reducing external costs, and increasing fairness or distributional equity. In this note, we look at CSR from an economic point of view. We focus on environmental and natural resource issues with a particular emphasis on water. We first clarify and contextualize the term CSR before we situate it in the economics literature. Public goods are nonexcludable and also provide benefits to those who don't buy a company's products. External costs are, by definition, social costs that are not directly borne by the firm. Paying fair wages may be less economically efficient than paying lower market wages. Companies undertaking CSR may therefore seem to be going beyond their own self-interest. CSR need not negatively affect a company's bottom line, however. Emphasizing the organic nature of a product, for example, can be an integral part of positioning or branding a product or company. Reducing materials waste may generate costs savings and satisfy supply chain requirements of business-to-business customers, such as Wal-Mart. Similarly, funding conservation projects in water basins may in fact be an effort by beverage companies to reduce the risk of being adversely affected by water scarcity. . . .